Yet it is not just economists. Everyone who has borrowed huge sums – because that was the only way they could buy a house – worries about prices falling. Most concerned are those whose equity in their home would be wiped out if our largest city saw a correction such as those recently in Melbourne and Sydney.
So far, that is not forecast, because of the simple fact that Australia has an oversupply of houses whereas New Zealand, and particularly Auckland, remains chronically undersupplied. By Kiwibank’s latest analysis, the country is short of 130,000 houses, up from 100,000 a mere year ago. For all those New Zealanders in overcrowded living conditions this winter, this would have been an excellent time for KiwiBuild to kick in. It will not happen, however, because – this is the kindest way of putting it – of the complete failure of the Government’s single biggest policy promise at the last election.
For everyone who is not already an Auckland homeowner, the tempering of the city’s house prices might be good news, except that the drop of more than 3% in the past 12 months is just one among many contributing factors to the palpable feeling of economic malaise.
New Zealand is not alone in having the anomalous situation of low unemployment yet low wage growth. (Although surely it is alone in having the number on Jobseeker Support benefits increasing while unemployment is decreasing. The Government should explain that.) Inflation is 1.7%, so it’s no wonder that, with wages growing at just 2%, workers feel they have stalled and are close to slipping backwards. Everything feels as if it is tempering, sliding and drifting.
Interest rates are low and possibly going lower, but the Reserve Bank’s most recent cut in the Official Cash Rate did not stimulate the economy and there is no reason to expect the next one will, either. Those whose savings are in the bank are earning a fraction more than people whose cash is under the mattress.
Infometrics describes the outlook bleakly by saying that households could go into their shells over the next year as economic conditions worsen, with little to support spending growth in the near term. Meanwhile, firms’ unwillingness to commit to capital expenditure is being matched by a lack of new hiring activity.
No employer likes laying off staff, so to hire a new person is an act of confidence. Confidence is that essential but invisible oil that greases the economy. Starting with business confidence falling after the last election, and now spreading to households, there is a palpable sense that many people are wary about what is coming. With rare exceptions such as Sleepyhead’s expansion announcement, people and firms are holding off spending and investing.
Any future policies aimed at curbing greenhouse-gas emissions are likely to add to the cost of living. Meanwhile, indebtedness in the agricultural sector has had little attention, but spending reductions by farmers are immediately felt in provincial towns.
All these concerns and indicators are now being weighed up. None alone is catastrophic, and growth is still forecast, albeit lower than previously signalled, but the accumulated weight of lowered expectations is burdensome. Against this, Prime Minister Jacinda Ardern risks sounding as though she fails to understand the very real worries and concerns of ordinary New Zealanders. For those alarmed about their hard-earned retirement savings dwindling before their eyes, the PM’s themes of “widening our idea of what prosperity means” can feel not just fluffy but frightening. New Zealanders know what prosperity is. We want everyone to share in it. But first we need to feel confident that ministers know how to create the policies that will genuinely help achieve it.
This editorial was first published in the August 3, 2019 issue of the New Zealand Listener.